Karnataka HC Rules Banks Cannot Freeze Entire Accounts For Partial Freeze Orders

The Karnataka High Court has ruled that banks do not have the authority to freeze a customer's entire bank account when they have only received a partial freeze order from investigating agencies.

Justice Suraj Govindaraj delivered the ruling in response to a petition filed by Madhu, a private sector employee residing in Bengaluru. Madhu had challenged the action of the Kothanur branch of IndusInd Bank, which had placed his entire bank account under a freeze.

The freeze was initially triggered by two separate communications from police departments in other states. The cybercrime police of Mehsana in Gujarat had requested a freeze of Rs 15,000, while the Barrackpore police station in West Bengal requested a freeze of Rs 10,000.

Although the official communications only instructed the bank to freeze a combined total of Rs 25,000, IndusInd Bank blocked access to Madhu's entire account. The bank defended its decision by arguing that it froze the entire account because it apprehended the possibility of receiving further such directions in the future.

Justice Suraj Govindaraj rejected the bank's argument, stating that a bank acts merely as a custodian of an account. He clarified that a bank's role is to implement lawful directions issued by competent investigating authorities, and its power is strictly limited by the terms of those directions.

The judge noted that a bank performs a limited and ministerial function when acting on communications from investigating agencies. He stated that a bank is neither an investigating nor an adjudicatory authority, and it cannot assume legal powers or expand the scope of directions based on administrative considerations or assumptions.

The court emphasized that the money in a customer's account remains the property of the account holder, subject only to restrictions lawfully imposed by authorities. The judge added that freezing an entire account has serious civil consequences, as it can severely impact an account holder's ability to meet their day-to-day expenses.